UH Energy hosts the third installment in the 2017-2018 Energy Symposium Series: Critical Issues in Energy on Thursday, February 8, 2018 on the campus of the University of Houston.

Lily Huang

A panel of experts convened in front of a live audience at the University of Houston recently to discuss one of the key energy issues of our time – should government subsidies for renewable energy continue?

It’s not a simple question, and finding the right answer requires an understanding of global needs and policies, as well as some hard decisions.

Today 80% of the energy we use globally is sourced from hydrocarbons (oil, natural gas and coal), and 20% comes from renewables and nuclear. There are many hypotheses about the future energy mix. One possibility is that in 2040, 60% of the world’s energy will come from hydrocarbons, with natural gas making up the largest percentage of that, while 40% will come from renewables and nuclear, with most of that in the form of wind and solar energy.

In 2017 in the United States, wind and solar represented almost half of new electricity generation capacity.

Meanwhile, total energy usage is predicted to rise between 25% and 35% by 2040 due to increasing population and higher global GDP. So the projections are that in the future, we will use more energy, and a larger share of that energy will be from renewable sources. We are already seeing an increase in the usage of renewables, especially to generate electricity.

In the U.S. alone in 2016, $18.4 billion was spent on energy subsidies; $11 billion of that went to renewable energy and $3 billion to energy efficiency.

I served as moderator for the panel discussion that night in Houston, as speakers considered subsidies in the context of everything from the free market to health impacts related to fossil fuels. The speakers included Katie Tubb, policy analyst for Energy and Environmental Issues in the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation; Richard Heinberg, senior fellow at the Post Carbon Institute in Oregon; Michael Skelly, founder and president of Clean Line Energy; and Dev Millstein, a research scientist at the Lawrence Berkeley National Laboratory.

A study by the University of Texas projected that U.S. energy subsidies per megawatt hour in 2019 would be $0.5 for coal, $1- $2 for oil and natural gas, $15- $57 for wind and $43- $320 for solar. Many of the renewable energy subsidies come in the form of a Production Tax Credit (PTC) of 2.3 cents per kilowatt hour. Wholesale prices for electricity in 2017 were between approximately 2.9 cents to 5.6 cents per kilowatt hour. Therefore the wind production tax credit covers 30% to 60% of wholesale electricity prices.

What have those subsidies accomplished? One thing subsidies have done is help bring down the cost curve for wind and solar energy. Today we see dramatically lower costs for both wind and solar. Without subsidies going forward, Skelly believes costs for both wind and solar will be about 3.0 cents per kilowatt hour in the U.S.

But adoption varies across the states. The Texas model of wide-open energy markets since 1999 has led to an integrated marketplace where solar, especially, and natural gas seamlessly provide energy to all Texans. Costs for wind and solar are coming down, and they are competing with traditional forms of energy.

Given that, should subsidies continue? First we need to explore another side to this discussion, and that centers around environmental, social and health factors.

Many believe climate change is one of the most important challenges to humanity this century and that governments have the moral responsibility to provide subsidies for renewable energy in order to increase the rate at which the world transitions to a lower carbon society.

Millstein, the Berkeley National Lab researcher, has tried to quantify the impact of pollution from carbon sources of energy. Basically, he has reported, more pollution equals more deaths –his research found that 7,000 deaths could have been avoided over a 10-year period through the increased use of wind and solar.

Millstein looked at this another way using data from 2015. His conclusion was that each kilowatt hour of wind generated 7.3 cents worth of air quality and climate benefits. Further, each kilowatt hour of solar generated 4.0 cents of air quality and climate benefits.

I think there are large uncertainties in these estimates, but at least it is a way of trying to quantify the impact. Therefore, given the production tax credit is 2.3 cents per kilowatt hour, should we keep subsidies going because of the implied benefits? A long-used policy idea says that if you want to slow or stop the use of something, simply put a tax on it. You can look to cigarettes as an example. Well, what about carbon? If you concur with Millstein that there is a direct link between pollution and health risks, why not put a tax on carbon?

Some cite health benefits in urging continued subsidies for renewables. Others say the subsidies are critical because they will accelerate the rate of transition to a low-carbon world, presumably helping avoid climate catastrophe at a global scale.

But others say, No. Get rid of subsidies. They argue the costs of wind and solar have been reduced to a point where they are competitive with traditional sources of energy, at least for electricity, so let the markets rule.

Today around the world energy systems are becoming more and more distributed giving each of us as consumers more power. As a collective body can we impact change around the world? This debate is far from over. You have the opportunity to take an active part as a consumer, a concerned citizen and an advocate for your desired outcome.

The choice is yours.

William “Bill” Maloney is a member of the University of Houston Energy Advisory Board. He is also currently on the Board of Directors of Trident Energy and serves as an energy advisor to Warburg Pincus. Bill retired from Statoil in 2015 where he was Executive Vice President, leading the business area Development and Production North America. In this capacity he played a key role in Statoil’s Corporate Executive Committee and was Statoil’s senior executive in North America. Bill attended Syracuse University where he received an MS in geology. He is an avid tennis player and still maintains an active interest in music.

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